Did you know that contributing a portion of your income to retirement accounts can help you qualify for tax breaks and sometimes even for employer contributions? Another new and lucrative perk which retirement accounts like 401(k) or IRA will now have is a legal necessity for investment advice which isn’t biased. Apart from this one, there have been some more tweaks and changes to retirement account which is definitely going to have an impact on the people who are eligible to contribute and how big or huge their tax savings are going to be. If you’re a baby boomer, you should know about the recent changes that may affect your tax savings. Check them out.
Change #1: Legal unbiased advice in your best interest
This new rule is all set to start in April 2017 and according to it, a financial professional who makes recommendations on investment about your IRA or 401(k) is legally obligated to offer you advice in your best interests. He should recommend you the funds which provide highest compensation to the financial advisor. This is a part of the fiduciary level of care where the advisor is asked to act as according to the best interest of the client. However, this new rule will only be applicable to retirement account and advice on any other kinds of tax or financial issues won’t be held under this rule.
Change #2: Charitable contributions on IRA
Withdrawing money from the conventional IRA account is necessary after attaining the age of 70 and half and income tax remains due on every single contribution. But in case you donate a portion or the entire part of the distribution to a qualified charity organization and you’ve crossed 70 and half years of age, you won’t be liable to pay taxes on this transaction. Such IRA tax-free charity contributions have always been a temporary feature of IRAs since the year 2006 but it was recently that it was made permanent.
Change #3: Income limits of Roth IRA become higher
You can easily earn an added $1000 in the year 2016 and yet save for retirement. The eligibility of Roth IRA will phase out for people whose gross income is between $117,000 and $132,000. Usually it is a rule that Roth deposits are done with after-tax dollars but the earnings that you make every year aren’t taxes. Withdrawing money after attaining 59 and half years of age from Roth accounts which are more than 5 years old are also considered as tax free. Though it won’t help you with the present tax picture but it will definitely assist you in the long run.
Change #4: The new retirement account, myRA
There’s a new retirement account, the myRA which was launched throughout the nation in November, 2015. This new account has been targeted at people who don’t have access to 401(k) plans. Individuals who want to save can contribute $5500 per annum to this new Roth account and if they’re more than 50 years of age, the amount can be $6500. There’s only 1 investment option, a variable interest paying Treasury savings bond. However, as soon as you hit the maximum balance that you can maintain on your myRA account ($15,000) or if the account turns more than 30 years old, the money will automatically be transferred to the private sector Roth IRA.
Hence, if you’re a retirement investor, you need to be up to date with the changes that are happening within the industry. Take into account the above mentioned changes brought about to the retirement accounts and measure your steps according to the rules.
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